ACCC proposes to allow system to reduce coal vessel queue at Port of Newcastle to continue

The Australian Competition and Consumer Commission has proposed to grant authorisation* to a capacity allocation system to reduce the queue of vessels waiting to load coal at the Port of Newcastle, ACCC Chairman, Mr Graeme Samuel, said today.

"The current vessel queue is a result of the infrastructure which moves coal from mines in the Hunter Valley onto vessels in Newcastle not being able to meet current levels of demand by exporters. 

"The ACCC is satisfied that, under the system, the same amount of coal would be exported from the Hunter Valley as would be exported without the system in place and with the vessel queue persisting. What the system does is match the amount of coal exporters wish to export with the capacity of the infrastructure".

The ACCC granted interim authorisation to the system on 5 March 2004, and this now remains in place. Interim authorisation allowed the system to begin operating at the beginning of April.

"The ACCC carefully considered all the information before it and, came to the conclusion that without the system in place, a significant vessel queue was likely to persist during 2004.  It therefore concluded that, on balance, the system is likely to result in a net public benefit, particularly by reducing the demurrage costs paid by the industry.

"The ACCC considers that one of the constraints on the infrastructure being able to meet the demand of exporters is the capacity of the rail system.  The Australian Rail Track Corporation has indicated that it is planning to significantly upgrade the rail system over the next several years at a cost of $145 million.
 
"Port Waratah Coal Services estimates that demurrage savings resulting from the system would be around $118 million in the remaining months of 2004.  These savings equate to more than 80 per cent of this cost to upgrade the rail system.

"However the ACCC also accepted that the system is likely to result in public detriment. In particular, the design of the system distorts the competitive process in that it does not necessarily allow individual coal producers to sell the amount of coal they would have sold without the system.  For example, the design of the system may not take into account that some producers may have the ability to better manage their exposure to a queue than others".

While PWCS has requested authorisation until 31 December 2005, the ACCC does not propose to grant authorisation past the end of 2004.

"The ACCC considers that the situation in 2005 is substantially less clear.  It is much less certain that a vessel queue will exist in 2005, given the dynamic nature of the market. Further, it seems the detriments will be exacerbated by any long term operation of the system.  Therefore the ACCC proposes not to grant authorisation for the system to extend into 2005. 

"Having proposed this short term authorisation, the ACCC expects that the breathing space will be used by PWCS and the industry to develop and implement a more efficient long term solution to minimise the possibility that a vessel queue of this size will form again".  

*The ACCC has the function, through the authorisation process, of adjudicating on certain anti-competitive practices that would otherwise breach the Trade Practices Act 1974. Authorisation provides immunity from court action, and is granted where the ACCC is satisfied that the practice delivers a net public benefit.